Forthcoming US GDP Revision

Discussion and Analysis by Charles Porter

 

Economic Growth in the United States of America, measured by the annualised growth of Gross Domestic Product (GDP), in the second quarter of 2017 was 2.6%. This headline figure, published last month, was an ‘advance estimate’ and will be revised within a second estimate this afternoon. This article covers what is expected by foreign exchange markets and why this release matters.

 

The release of US GDP advance estimates, alike all nations, comes with an admonition of inaccuracy. In order to provide an indication of macroeconomic performance, statistics agencies use a predefined set of more temporally responsive indicators for indicative purposes. They are, therefore, “incomplete or subject to further revision”.

 

The Bureau of Economic Analysis correctly identifies that annualised second quarter growth, which was significantly higher than the first quarter revised estimation, was driven by consumption expenditure, export markets and government expenditure. This trend of consumption is in conformity with, and arguably caused by, the “second highest consumer confidence [level] since late 2000” (Bloomberg 2017). The Consumer confidence survey, released yesterday, showed that US consumer confidence has reached 122.9 index points, beating estimates and the previous month’s figure.

 

               Why does this release matter?

 

A recurring theme in our analysis articles this week has been macroeconomic and political uncertainty surrounding major international currencies. Within the US political economy, an epicentre of these concerns, the Dollar has made losses against other currencies, particularly the Euro which rose above 1.20USD yesterday. The decline of the dollar has been gradual yet pervasive. Therefore, a greater than expected positive economic growth estimate would support a reversal of US Dollar losses.

 

Moreover, as investors begin to proclaim the curtailment of risk-off movements, which generated the disfavour that the dollar has experienced, positive macroeconomic performance should encourage a stronger dollar. This US-focussed analysis, however, is deliberately ignorant of the Euro’s strength and expected path.

 

Finally, this release comes as expectations heighten around Trump’s imminent proclamation and clarification on his tax and trade policies. Some investors even see the market reacting to the realisation that the internalisation and pricing of assets and equities, that included expectations of Trump’s proposals, was premature. Surely, a positive economic performance statistic would be a good backdrop to launch this proposal.

 

               What is expected from this release?

 

Although only a modest revision is anticipated, it remains an upward revision. Therefore, with respect to the advance estimate, the second estimate is supposed to attest to moderately higher growth. However, the propensity for the revision to show a bigger change is clear, with the precedent being well established by previous GDP estimations.

 

The average revision of GDP national accounting within US releases, from advance-to-second estimation, is 0.5%. This is the average change observed between 1993 and 2014. Therefore, given the importance of this release, shown within the previous section, and a proven capacity for more perceptible change, this GDP result release should be watched carefully as it may exceed expectations.